Job gains beat forecasts as U.S. weathers budget cuts

American employers took on more workers than forecast in May as the world’s largest economy weathered the impact of higher taxes and federal spending cuts.

Payrolls rose 175,000 after a revised 149,000 increase in April that was smaller than first estimated, Labor Department figures showed today in Washington. The median forecast in a Bloomberg survey called for a gain of 163,000. The unemployment rate climbed to 7.6% from 7.5% as a surge in the number of people entering the labor force swamped the number of positions available.

Broad-based gains at private employers, ranging from retailers and builders to health-care providers and hotels, indicated companies are optimistic about the outlook for demand, even as government payrolls shrank. Stocks advanced on optimism economic growth will pick up later this year after a second- quarter slowdown.

“The economy has really held up much better than expected, considering the strong fiscal headwinds that we’re experiencing right now,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, who correctly projected the rise in the unemployment rate. “The underlying fundamentals of the economy are very supportive, and once these headwinds recede somewhat, that the economy can gain momentum.”

The Standard & Poor’s 500 Index climbed 1% to 1,639.09 at 12:30 p.m. in New York. The yield on the 10-year Treasury note rose to 2.15% from 2.08% late yesterday.

Craft Brewer

Among companies hiring workers is Santa Fe Brewing Co., a 30-employee craft beer maker in Santa Fe, New Mexico. The company has hired five full-time workers and one part-time employee this year to help support growing sales in the Southwest. It’s looking to hire three or four part-time employees now, and may add more full-time positions next year, said owner Brian Lock.

“I get the sense the economy is coming back a little bit,” said Lock, 41. “We are definitely on the recovery track. We are seeing more tourists than we have in the past three of four years, and that is a good sign.”

While Americans are finding work, wage gains aren’t picking up. Average hourly earnings were little changed at $23.89 in May after $23.88 in the prior month. They were up 2% in 12 months ended in May, the same as in April.